To many Muslims, trading seems to be a doubtful activity as they do not know whether it complies with the Quran. In practice, they are allowed to earn from investments under certain conditions. In this guide, you will find detailed instructions on how to make investments in accordance with Islamic laws.
Let us clarify from the very beginning that there is an extensive range of halal trading opportunities. But Muslim investors must pay more time to analyze every step and deal.
So, when investing in stocks is permitted? If you choose a company involved in halal activities. For example, these are manufacturing clothes and shoes, producing home goods, construction, making medical goods and equipment.
And here are haram business spheres:
- everything related to alcohol;
- tobacco;
- nightclubs;
- gambling;
- tourism;
- hotels;
- insurance services;
- pornography;
- weapon;
- riba (including banks that earn from unjustified lending);
- pork production.
Yet, one must take into account that a company can operate in several spheres simultaneously. So, is investing in stocks haram if a company is not fully halal? Some Muslims would avoid investing in stocks belonging to any companies that get even a small part of their profits from forbidden activities.
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But there is a different approach as well ― a Muslim cannot invest in a company if more than 5% of its revenue comes from haram activities. Also, one can compensate for investing in companies that are not entirely halal by making corresponding donations to charity.
In addition, one must not invest in companies with large debts ― more than 33% of their average annual overall market capitalization.
Another restriction is to refrain from investing in companies with more than 45% accounts receivable based on their annual average total of assets.
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Now, let us discuss other types of investments. Bonds and interest-based investments are not allowed. Short-selling on stocks is also forbidden as it involves borrowing.
If one is interested in Forex and CFD trading, one can use a special swap-free account, which does not offer any rollover interests on overnight trades. For example, you can open such an account on AvaTrade.
In sum, Muslims can safely earn from stocks if they carefully check every company they plan to invest in and make sure it operates in halal spheres only. Besides, a trader must not turn investing into gambling, which means that one must avoid high risks and leverages. And, certainly, one must act within the rules and pay all the taxes in time.